Chapter 14 - Losses - Opening and Closing Year Rules

Question 1

Opening Year Losses

Answer 1

All losses sustained in the first four tax years of trading can be used against net income of the three years preceding the year of the loss on first in first out basis

Question 2

Overlap Losses

Answer 2

There is no double-counting of losses like overlap profits, therefore there is no overlap losses. Where the basis periods overlap, a loss must be recognised only in the earlier period

Question 3

Effect of an Early Trade Loss Relief Claim (S.72)

Answer 3

ETLR carries a loss back against the net income of the 3 preceding tax years (earliest first). Claim must be made by first anniversary of 31 Jan following end of the tax year of the loss. Relief is capped at higher of £50,000 or 25% of ATI

Question 4

Closing Year Losses

Answer 4

Known as terminal loss relief. Allows a loss to be deducted from profits in year of cessation and to be carried back to the 3 preceding tax years, taking later years firs.t Relief is set against profits, not income and it only applies to trading income

Question 5

Computing Terminal Loss

Answer 5

Usually the final 12 months of trading and is increased by any overlap profits

Question 6

Actual Trading loss of Final Tax Year of Trade

Answer 6

If the final accounting period of trade isn’t 12 months, terminal loss and actual loss will be different.